5 Ways for Business Owners to Reduce Their Taxable Income
The Internal Revenue Code allows for a wide variety of options to save money on taxes, encouraging entrepreneurs to create jobs and invest in their businesses. Most of us would much prefer to run our businesses spending time on what we know and enjoy. Unfortunately, every business owner knows that understanding tax laws and how to implement ways to take advantage of them is critical for the overall profitability of any business. Of course, whenever we are making business decisions with IRS it is important to consult a CPA to ensure we understand the entire scope of the regulation or law. It is not recommended to spend money for the sole purpose of reducing your taxes. However, you are likely to benefit from smart spending. Here are some popular solutions to lower your tax liabilities and save money for your business.
The federal government offers tax credits and tax breaks that drive business owners to make decisions that improve the overall American economy. Actions such as hiring employees, creating an accessible environment for people with disabilities, shifting to emissions-free technologies, and even offering health coverage for employees can qualify you to save money on taxes.
Qualified Business Income (QBI) Deduction
You may qualify to deduct 20% from the QBI if your business is an S-Corp, a partnership, LLC, or a sole proprietorship. This deduction comes in addition to your regular deduction of business expenses. You could qualify if your taxable income is under $157,500. The amount goes up to $315,000 if you are filing a joint return with your spouse.
Write Off Bad Debt
Unfortunately, some customers may never pay for what they purchased on a note. The last quarter is the perfect time to identify those receivables and write them off to save money on taxes this year.
Fund a Retirement Plan (For Yourself and Employees)
Adding money to an Investment Retirement Account such as 401(k) and 403(b) frees you from taxation up to a certain amount every year. The share of income put in an IRA is usually tax-free until you withdraw it. Consider consulting a tax advisor to make sure you qualify.
Section 179 and Bonus Depreciation
Business assets such as machinery, vehicles, and other equipment can qualify for a Section 179 deduction. This part of the IRS Code allows your business to write off up to $1,040,000 of the equipment cost in the first year. You can take advantage of this rule until you reach $2,590,000 for the year.
The additional bonus depreciation also offers a tax break of 50-100% on equipment cost. The current bonus depreciation rules are valid until January 1, 2023. Please, note that you must put the newly acquired equipment in use by December 31st to take advantage of these tax benefits.
If you believe any of the above ideas would benefit you and your business I encourage you to consult your CPA or tax consultant.
Until next month!
"The least movement is of importance to all nature. The entire ocean is affected by a pebble."
Did You Know???
- It is impossible for most people to lick their own elbow. (try it!)
- A crocodile cannot stick its tongue out.
- A shrimp's heart is in its head.
- It is physically impossible for pigs to look up into the sky.
- If you sneeze too hard, you could fracture a rib.
- Wearing headphones for just an hour could increase the bacteria in your ear by 700 times.
- Almonds are a member of the peach family.
- Maine is the only state that has a one-syllable name.
Just for Laughs!
Two friends are walking down the street thinking of something to do. One friend turns to the other and says, “Let’s go get a drink, there’s this new place that does THE best punch you’ll ever drink.”
So they make their way to the bar and walk straight up to the bartender. “Bartender, two glasses of your best punch please.”
The bartender replies in a stern voice, “If you want some punch you’re gonna have to get in line like everybody else.”
The friends turn and look around but there’s no punch line…